Will Transocean and Royal Dutch Shell Strike a Deal?

In the interest of full and fair disclosure, let's be perfectly clear: Royal Dutch Shell (NYS: RDS.A) and Transocean (NYS: RIG) have no plans (that we know of) to align their respective oil-drilling objectives in the Alaskan arctic. With that said, recent announcements by the respective leaders in their industries makes for some interesting hypotheticals.

A recent announcement by Transocean will affect its inventory of equipment assets, however. With an eye toward the future of oil drilling -- deepwater rigs and exploration -- Transocean recently announced a $1.05 billion deal with Shelf Drilling International Holdings, a Dubai-based company. The deal will rid Transocean of several shallow water rigs; right in line with its plan to shift away from the higher maintenance costs and more frequent downtime associated with these old-school models. Even at a net loss to Transocean, the sale makes a lot of sense, given its plans going forward.

Transocean is going deep, and for good reason. Over half 2012's significant oil discoveries were in deep water regions. And as we've just learned from Royal Dutch Shell (see below), the need for deepwater drilling will continue to grow. Transocean added a bit of fuel to our rumor mill fire by announcing that it's in discussions "for construction of four ultra-deepwater drillships, and a 10-year contract." And Transocean's news comes on the same day Shell announces its own deepwater drilling extravaganza? Hmm.

As for Transocean's financials, the Macondo spill remains a significant drag on earnings, as Q2 results dramatically confirmed. Transocean was forced to set aside $700 million for "loss contingencies" stemming from the Macondo fiasco, the largest offshore oil disaster in U.S. history. Macondo-related costs also forced Transocean to restate earlier financial announcements due to mix-ups relating to insurance recoveries, legal costs, and the like. Though not material to financial results, the need to update financial results demonstrates Transocean isn't out of the Macondo woods just yet.

The latest news from ShellAfter overcoming six years of regulatory hurdles, backlash from environmentalists (this will surely continue) and a not inconsequential investment of about $5 billion, Shell announced it's finally started drilling in the Chukchi Sea, 70 miles off the coast of Alaska. In what Pete Slaiby, vice president of Shell Alaska, proclaims will be "a new chapter in the Alaskan oil and gas history," Shell started what is likely to be years of exploratory work in the region.

Shell's drilling is strictly preliminary at this point. Work is still being completed on an oil spill containment barge in the Puget Sound area, and awaits Coast Guard approval. Once that hurdle's been overcome -- which could be as soon as a week or two -- the ship will head north and the serious work will begin.

Though time is limited -- the drilling season is scheduled to end on Sept. 24 -- Shell is pushing for an 18-day extension. Whether the extra time is added or not, Shell can continue the initial drilling in two additional sites, assuming permission is granted by the regulatory powers-that-be. If there are no major catastrophes, Shell has years of work to do in the area.

And you can bet other oil companies won't be far behind. BP (NYS: BP) is just one example of the oil drilling big boys that's already knee-deep in the Alaska oil drilling scene. ExxonMobil (NYS: XOM) is another oil behemoth spending millions lobbying for the right to go deep, and you can be sure it'll keep a close eye on Shell's efforts.

Not surprisingly, all the deepwater drilling Shell has planned for the Chukchi Sea area will require the right equipment for the job. Wouldn't Transocean's new line of deep sea capable drilling rigs fit nicely into Shell's long-term plans in the Chukchi Sea? Say, for the next 10 years or so? Which just so happens to be the length of the proposed ultra-deepwater contract Transocean management alluded to? Hmm...

What could beSpeculative? Sure, but you must admit the timing of the Transocean and Shell announcements are eerily similar in nature. Even if a Transocean-Shell marriage doesn't come about, it's clear deepwater drilling is the wave of the future. And with its long-term shift in business focus under way, Transocean is ready to generate significant stock price appreciation for shareholders -- regardless if the rumors are true.